Mistra land auction suspended again after Montebellos claim Kuwaitis showed bad faith

A court has upheld a request to suspend the judicial sale by auction of the Mistra Village Holiday Complex, after it was shown evidence of bad faith in the assigning of the debt.

Developers JPM Brothers Ltd are a minority shareholders (42%) in Gemxija Crown Ltd, an entity Montebello formed together with Kuwaiti company Al Massaleh Real Estate Co (AML) to develop land in the Mistra area.

The land was bought in 2005, with €42 million of finance provided by Bawag Bank. That loan fell due in 2010 and Gemxija Crown, together with its guarantors were served with a judicial letter demanding payment. JPM is a guarantor of €21 million of that debt, AML the other €21 million.

But the €42.2 million credit and associated rights were later assigned by Bawag to BVI-registered GCC Financial Instruments Limited for €29 million.

In 2013, another judicial letter was sent to Gemxija Crown, JPM Brothers Ltd and AML, informing them that Bawag Bank’s credit had been assigned to GCC. 

In September 2015, Mistra Developments plc (a company formed by AML to develop the land at Mistra) informed Gemxija’s other owners that it was not going to be able to pay the price agreed in the promise of sale.

JPM argued that GCC had been incorporated by AML with the singular aim of taking over Bawag Bank’s credit. It was suggested that GCC’s purchase of Bawag’s credit had been made in bad faith and in breach of AML’s obligations towards Gemxija, namely that of putting the collective interests of the partners first.

GCC submitted that JPM had known about the 2013 contract of assignment of credit between Bawag and GCC for several years and had taken several measures to prevent the judicial sale.

JPM succeeded in preventing the auction at the last minute on four occasions, actions perceived by GCC to be “nothing but another attempt by JPM to stultify the execution of an executive title for the recovery of a debt.”

JPM are guarantors of €21 million of Gemxija’s debts, whose property is valued at anything between €50-€75 million.

The Mistra Village Holiday Complex, owned by Gemxija Crown, is worth €5.6 million. JPM alleged that AML had acted in bad faith towards it and this merited that it be released from its guarantee, because it had acquired the debt from Bawag by virtue of assignment and not through subrogation.

The court was told that part of the consideration paid to Bawag Bank in return for the assignment of its credit to GCC, was paid by money held by Al Massaleh in a pledged bank account – so in effect Al Massaleh paid part of the price.

JPM told the court that AML and a Dutch company Marem BV were equal shareholders in Gemxija – Marem BV being a subsidiary of AML and the company holding AML’s shares in Gemxija. The court also noted that AML’s legal consultants had been present during a relevant Gemxija board meeting, saying that this indicated a link between Marem BV and AML.

The court said it was of the opinion that the plaintiff company had tendered evidence pointing to bad faith in the actions of the other companies when Gemxija Crown’s debt was acquired, and the defendants had not produced any evidence to the contrary. These were “a legitimate impediment to the continuation of the judicial sale by auction in question.”

Ms Justice Jacqueline Padovani Grima ordered that the judicial sale be suspended until a related case, filed earlier this year by JPM Brothers Ltd against Gemxija Crown Ltd, is decided to avoid the risk of serious prejudice being suffered by the guarantors as well as because the creditor could easily have obtained payment from Gemxija Crown, whose property, the court noted, was worth over ten times more than the credit it secured.